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Home > Business > Business Headline > Personal Finance

Child's plan: No kidding

October 23, 2003 09:38 IST
Last Updated: October 23, 2003 09:41 IST

Child plans have emerged as a popular choice among insurance seekers in recent times. Simply put a child plan is designed to provide financial security to the child incase of the insured parent's demise. Also these plans are commonly used to provide for various reasons ranging from education to marriage.

It is a common practice to receive inflows in installments from child plans towards the end of the term. What investors would find interesting is the fact that it is possible to pay lower premiums and yet receive higher amounts on maturity. The secret lies in taking more than one policy i.e. if the sum assured you were looking at was Rs 100,000, then opting for five policies of Rs 20,000 each over five different tenures will do the trick. Let us use an illustration to better understand the same.

Mr. X who is presently 31 years old wishes to opt for a child plan for his 3 year old daughter; the sum assured is Rs 2,50,000 for a 20 year term.

Now instead of opting for a single child plan for the required sum assured that will entail high premiums, Mr. X can opt for 5 policies of Rs 50,000 each. A smart choice would be the children's plan offered by HDFC Standard Life Insurance with the double benefit option. Since the proposed plan offers a single cash flow to the policy holder on maturity, the chosen plans should be of varying tenures to bring them on par with other child plans.

Sum Assured
Annual premium
Total premium

Conventional child plans offer returns in 4-5 installments comprised of a percentage of the sum assured and bonus. To better understand the working let us consider two child plans offered by insurance companies P and L respectively.

Insurance Co. P
Sum Assured Rs 250,000
Term20 years
Annual premiumRs 14,004
Total premiumRs 280,080
Insurance Co. L
Sum Assured Rs 250,000
Term20 years
Annual premiumRs 13,620
Total premiumRs 272,400

Clearly opting for more than one policy has helped the policy holder by saving on the premium amount paid. Another interesting feature is that with varying terms the premium amount reduces progressively from the 16th year. Now for the other aspect, which most policy seekers are keenly interested in i.e. returns on maturity. Since the bonus is an integral part of the maturity proceeds, they have been computed assuming a rate of 6% for all the policies.

HDFC LifeCo. PCo. L
Term (yrs)Amt (Rs)ComponentsAmt (Rs)ComponentsAmt (Rs)Components
16108,000 SA+Bonus62,500 25%of SANILNA
17111,000 SA+Bonus50,000 20%of SA62,500 25%of SA
18114,000 SA+Bonus50,000 20%of SA62,500 25%of SA
19117,000 SA+Bonus50,000 20%of SA62,500 25%of SA
20120,000 SA+Bonus326,881 20%of SA+B.362,500 25%of SA+B.
570,000 539,381 550,000

(SA-Sum Assured; B-Bonus)
(Bonus rates are indicative in nature and may vary depending on the insurance company)

The numbers say it all! Despite having paid lower premiums, policy holders can receive higher returns by opting for more than one policy. So go ahead and get that child plan, its like having your cake and eating it too!

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Number of User Comments: 4

Sub: No Kidding please

This information on Child Life Policy is really easy to understand and self explainatory. Would really appreciate if you can feature other child life policies ...

Posted by Abhishek Mahapatra

Sub: Imparts some idea

I would like to get more abt some of the best chils plans available in India, Abt me, I have recently become Dad and also ...

Posted by Suresh

Sub: Child Plans

23-10-03 It is felt before suggesting Child Plan of any particular insurer,indepth study of all similar plans available in the market should be made.Also it ...

Posted by Ranabir Aikat

Sub: very informative article

I liked the article very much. It is very informative in the sense, it provides all the required home work at one place for an ...

Posted by Abdul Wahab



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